Today´s European Central Bank (ECB) meeting and monetary policy decision is, indoubtedly, the main event on today´s agenda. The start of the european session saw quiet trading in EUR/USD, with the pair stuck in range trading and with a limited upside potential to break the key resistance at 1.3580.
Experts and analysts coincided with the view that the common currency won't be able to rally further if the ECB makes a clearly dovish decision, such as cutting the refi rate to 0.1%, something that seems fairly unlikely at this point, according to analysts at Lloyds Bank.
Actions speak louder than words, Lloyd´s says
Overall, market sentiment has shifted to a non-decision forecast for the February ECB meeting. "There is some market expectation of dovish action, though we and the majority are looking for no change. A cut in the refi rate looked like a possibility a few weeks ago, but with EONIA now better behaved it seems an unlikely and ineffective gesture." Lloyds Bank explained.
Those analysts believed some form of asset purchase scheme would be more effective, "but at this stage this seems to be too politically difficult to achieve," they said.
While dovish rhetoric can be expected, the rhetoric was already ramped up last time so, as they noted, "anything other than action this time may be a mild EUR positive."
ECB should make a move Danske Bank believes
Nonetheless, experts at Danske Bank, still favour a refi rate cut to 0.1%. "During January we have seen low inflation and declining inflation expectations combined with higher short-term money market rates - two scenarios the ECB's Draghi said would lead to policy action. The ECB may also consider stopping the sterilisation of SMP purchases," they said.
That scenario could take the Euro
immediately lower, according to José Piñeiro, market strategist at fxmania.
Karen Jones, technical analyst at Commerzbank believed the market was seeing a small corrective rebound from its 55-month moving average (ma) at 1.3470.
"This is viewed as the key break-down point to the 200-day ma at 1.3382 and the 2012-2014 uptrend at 1.3183. We have a minor support en route at 1.3458, the 38.2% retracement of the move up from July 2013, the 55 and 200-week ma at 1.3313/18, and the November low at 1.3295. Downside progress may be slow BUT we look for these levels to be eroded," she said.
José María Rodríguez, technical analyst at fxmania also sees the cross immersed in a corrective phase and expects "high volatility during the ECB meeting since during such event anything can happen".
He noted that any move to the downside might be stopped at the resistance level of 1.3435 and should rallies overcome 1.3580, they may try to erode the resistance at 1.3670.